Forward-Looking Statements
This document contains forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking
statements are those that predict or describe future events or trends and that
do not relate solely to historical matters. You can generally identify
forward-looking statements by the use of words such as "believe," "expect,"
"will," "anticipate," "intend," "estimate," "would," "should," "project,"
"plan," "assume" or other similar words or expressions, or negatives of such
words or expressions, although not all forward-looking statements can be
identified in this way. All statements contained in this document regarding
strategy, plans, future operations, projected financial condition or results of
operations, prospects, the future of Power REIT's industries and markets,
outcomes that might be obtained by pursuing management's plans and objectives,
and similar subjects, are forward-looking statements. Over time, Power REIT's
actual performance, results, financial condition and achievements may differ
from the anticipated performance, results, financial condition and achievements
that are expressed or implied by Power REIT's forward-looking statements, and
such differences may be significant and materially adverse to Power REIT and its
security holders.
All forward-looking statements reflect Power REIT's good-faith beliefs,
assumptions and expectations, but they are not guarantees of future performance.
Furthermore, Power REIT disclaims any obligation to publicly update or revise
any forward-looking statements to reflect changes in underlying assumptions or
factors, new information, data or methods, future events or other changes. For a
further discussion of factors that could cause Power REIT's future performance,
results, financial condition or achievements to differ materially from that
which is expressed or implied in Power REIT's forward-looking statements, see
"Risk Factors" under Item 1A of this document.
Overview
Power REIT is a Maryland-domiciled REIT that owns a portfolio of real estate
assets related to transportation, energy infrastructure and Controlled
Environment Agriculture (CEA) in the United States. Power REIT was formed as
part of a reorganization and reverse triangular merger of P&WV that closed on
December 2, 2011. P&WV survived the reorganization as a wholly-owned subsidiary
of the Registrant.
The Trust is structured as a holding company and owns its assets through seven
wholly-owned, special purpose subsidiaries that have been formed in order to
hold real estate assets, obtain financing and generate lease revenue. As of
December 31, 2019, the Trust's assets consisted of approximately 112 miles of
railroad infrastructure and related real estate which is owned by its subsidiary
Pittsburgh & West Virginia Railroad ("P&WV"), approximately 601 acres of fee
simple land leased to a number of solar power generating projects with an
aggregate generating capacity of approximately 108 Megawatts ("MW") and
approximately 7.3 acres of land with 18,612 sf of greenhouses leased to a
medical cannabis operator. Power REIT is actively seeking to grow its portfolio
of real estate related to Controlled Environment Agriculture for food and
cannabis production.
Results of Operations
Power REIT's consolidated revenue in fiscal years 2019 and 2018 was
approximately $2,181,000 and $1,975,000 respectively. Consolidated net income in
fiscal year 2019 was approximately $947,000 compared to $839,000 for 2018. The
difference between our 2019 and 2018 consolidated results was principally
attributable to the following: an increase in rental income of $182,000, an
increase in general and administrative costs of $10,000, an increase in
depreciation expense of approximately $39,000, and an increase in interest
expense of approximately $49,000.
30
The Company's cash outlays, other than dividend payments on its Series A
Preferred Stock, are for general and administrative ("G&A") expenses, which
consist principally of insurance, legal and other professional fees, consultant
fees, trustees' fees, NYSE American listing fees, shareholder service company
fees and auditing costs. . The Company further expects that the remainder of its
G&A expenses will continue to increase in 2020 and beyond as it further
implements its business plan.
For the fiscal years ended 2019, P&WV and PWRS contributed approximately 42% and
37% of consolidated revenue compared to 2018 where P&WV and PWRS contributed
approximately 46% and 41% of consolidated revenue. If Power REIT is successful
in pursuing its business plan and acquisition strategies, the contribution to
its consolidated revenues related to Controlled Environment Agriculture related
real estate is expected to increase over time as a percentage of the Company's
total consolidated revenue.
Liquidity and Capital Resources
To meet its working capital and longer-term capital needs, Power REIT relies on
cash provided by its operating activities, proceeds received from the issuance
of equity securities and proceeds received from borrowings, which are typically
secured by liens on acquired assets.
Cash Flows
During the year ended December 31, 2019, the Company's net cash generated by
operating activities was approximately $1,372,000. During the year ended
December 31, 2018, the Company's net cash generated by operating activities was
approximately $1,266,000.
During the year ended December 31, 2019, the Company's net cash used in
investing activities was $1,799,000. The Company, through two wholly owned
subsidiaries, acquired two greenhouse and processing facilities properties in
Colorado.
During the year ended December 31, 2019, the Company's net cash obtained by
financing activities was approximately $14,498,000, comprised principally of
principal payments on long term debt of approximately $409,000, loan acquired
for $15,500,000 and dividends on the Preferred Stock of approximately $280,000.
During the year ended December 31, 2018, the Company's net cash used by
financing activities was approximately $642,000, comprised principally of
principal payments on long term debt of approximately $361,000 and dividends on
the Preferred Stock of approximately $280,000.
Preferred Stock
During 2014, the Company expanded its equity financing activities by offering a
series of preferred shares to the public. The Series A Preferred Stock ranks, as
to dividend rights and rights upon liquidation, dissolution or winding up,
senior to the Company's common shares. Voting rights for holders of Series A
Preferred Stock exist only with respect to amendments to the Company's charter
that materially and adversely affect the terms of the Series A Preferred Stock,
the authorization or issuance of equity securities that are senior to the Series
A Preferred Stock and, if the Company fails to pay dividends on the Series A
Preferred Stock for six or more quarterly periods (whether or not consecutive),
the election of two additional trustees to our Board of Trustees. No Series A
Preferred Stock was issued during 2019. The Company had previously closed on the
sale of approximately $3,492,000 of its Series A $25 Par Value Preferred Stock
pursuant to a public offering prospectus supplement dated January 23, 2014.
31
Borrowings
In December 2012, PWSS acquired approximately 54 acres of land in Salisbury,
Massachusetts that it leases to a 5.7 MW utility scale solar farm. The
acquisition was financed in part by a bridge loan extended by Hudson Bay
Partners, LP ("HBP"), an affiliate of our Chairman and CEO, Mr. David Lesser. In
July 2013, PWSS borrowed $750,000 from a regional bank (the "PWSS Term Loan") to
refinance the bridge loan. The PWSS Term Loan carries a fixed interest rate of
5.0% for a term of 10 years and amortizes based on a 20-year principal
amortization schedule. The loan is secured by PWSS' real estate assets and a
parent guarantee from the Company. The balance of the PWSS Term Loan as of
December 31, 2019 was approximately $579,000 (net of approximately $9,500 of
capitalized debt costs). As part of the land acquisition, PWSS also assumed
certain existing municipal financing, the balance of which on December 31, 2019
was approximately $77,000.
On April 14, 2014, PWRS borrowed approximately $6,900,000 in connection with
PWRS' acquisition of leased property and establishment of its approximately $26
million credit facility. The credit facility carried a floating rate calculated
as based on a spread of 350 basis points over LIBOR. On November 6, 2015, PWRS
repaid the entire balance of the credit facility with proceeds from a new
financing secured by the real property owned by PWRS (the "PWRS Bonds") and
terminated the credit facility.
The PWRS Bonds are secured by land owned by PWRS and generated gross proceeds of
$10,150,000. The PWRS Bonds carry a fixed interest rate of 4.34 and fully
amortize over the life of the financing which matures in 2034. The use of
proceeds from the PWRS Bonds was to retire approximately $6.65 million of
existing indebtedness and the associated swap that was entered which are secured
by the PWRS property; retire the $1.65 million loan to PW Tulare Solar, LLC (a
wholly owned subsidiary of Power REIT) from Hudson Bay Partners, LP (an
affiliate of David H. Lesser - Chairman and CEO of Power REIT) including accrued
interest; and, to pay other accounts payable of Power REIT and its subsidiaries.
Upon completion of the refinancing, PWTS now owns its assets free and clear of
any indebtedness.
The balance of the PWRS Bonds as of December 31, 2019 was approximately
$8,538,000 (net of approximately $325,000 of capitalized debt costs).
On November 25, 2019, Power REIT, through a newly formed subsidiary, completed a
financing that is intended to provide capital for acquisition of additional
properties on an accretive basis. The financing is in the form of long-term
fixed rate bonds with gross proceeds of $15,500,000. The bonds carry a fixed
interest rate of 4.62% and fully amortize over the life of the financing which
matures in 2054 (35 years). The Trust intends to use the proceeds to expand its
portfolio of income producing properties.
In the case of each of the bridge financings from HBP described above, the
independent members of the Company's Board of Trustees approved the borrowings
in advance.
The approximate amount of principal payments remaining on Power REIT's long-term
debt as of December 31, 2019 is as follows:
Total Debt
2020 598,256
2021 635,517
2022 675,390
2023 1,167,971
2024 715,778
Thereafter 21,215,114
Long term debt 25,008,026
32
Related Party Transactions
For information concerning loans extended to the Company by Hudson Bay Partners,
LP, an affiliate of our Chairman and CEO, see "Borrowings", above. For
information concerning other related party transactions, see Note 8 to the
consolidated financial statements appearing following Item 15 of this document,
which is incorporated herein by reference.
Critical Accounting Policies
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make significant judgments and
estimates to develop certain amounts reflected and disclosed. In many cases,
there are alternative policies or estimation techniques that could be used. We
regularly review the application of our accounting policies and evaluate the
appropriateness of the estimates that are required to be made in order to
prepare our consolidated financial statements. Typically, estimates may require
adjustments from time to time based on, among other things, changing
circumstances and new or better information.
The accounting policies that we consider to be our "critical accounting
policies" are those that we believe are either the most judgmental or involve
the selection or application of alternative accounting policies, and that in
each case are material to our consolidated financial statements. We believe that
our revenue recognition policies meet these criteria. These policies are as
follows:
? Railroad Lease. The Railroad Lease is treated as a direct financing lease, and
income to P&WV under the Railroad Lease is recognized as earned based on an
implicit rate of 10% over the life of the lease, which is assumed to be
perpetual for the purposes of revenue recognition and recording the leased
assets on the balance sheet.
? Operating lease with rent escalation. Lease revenue from land that is subject
to an operating lease with rent escalation provisions is recorded on a
straight-line basis when the amount of escalation in lease payments is known
at the time we enter into the lease agreement, or known at the time we assume
an existing lease agreement as part of a land acquisition (e.g., an annual
fixed percentage escalation).
? Operating lease without rent escalation. Lease revenue from land that is
subject to an operating lease without rent escalation provisions is recorded
on a straight-line basis.
For further information, see Note 1 to the consolidated financial statements
appearing following Item 15 of this document, which is incorporated herein by
reference.
Non GAAP Financial Measures - Funds From Operations
We assess and measure our overall operating results based upon an industry
performance measure referred to as Core Funds From Operations ("Core FFO") which
management believes is a useful indicator of our operating performance. This
report contains supplemental financial measures that are not calculated pursuant
to U.S. generally accepted accounting principles ("GAAP"), including the measure
identified by us as Core FFO. Following is a definition of this measure, an
explanation as to why we present it and, at the end of this section, a
reconciliation of Core FFO to the most directly comparable GAAP financial
measure.
Core FFO: Management believes that Core FFO is a useful supplemental measure of
the Company's operating performance. Management believes that alternative
measures of performance, such as net income computed under GAAP, or Funds From
Operations computed in accordance with the definition used by the National
Association of Real Estate Investment Trusts ("NAREIT"), include certain
financial items that are not indicative of the results provided by the Company's
asset portfolio and inappropriately affect the comparability of the Company's
period-over-period performance. These items include non-recurring expenses, such
as those incurred in connection with litigation, one-time upfront acquisition
expenses that are not capitalized under ASC-805 and certain non-cash expenses,
including stock-based compensation expense amortization and certain up front
financing costs. Therefore, management uses Core FFO and defines it as net
income excluding such items. Management believes that, for the foregoing
reasons, these adjustments to net income are appropriate. The Company believes
that Core FFO is a useful supplemental measure for the investing community to
employ, including when comparing the Company to other REITs that disclose
similarly adjusted FFO figures, and when analyzing changes in the Company's
performance over time. Readers are cautioned that other REITs may use different
adjustments to their GAAP financial measures than we do, and that as a result,
the Company's Core FFO may not be comparable to the FFO measures used by other
REITs or to other non-GAAP or GAAP financial measures used by REITs or other
companies.
33
CORE FUNDS FROM OPERATIONS (FFO)
2019 2018
Core FFO Available to Common Shares $ 1,173,958 $ 1,043,633
Core FFO per Common Share 0.63 0.56
Weighted Average Shares Outstanding (basic) 1,871,554 1,848,739
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
2019 2018
Net Income Attributable to Common Shares $ 666,662 $ 558,579
Stock-Based Compensation
205,335 222,721
Interest Expense - Amortization of Debt Costs 26,062 25,191
Amortization of Intangible Asset
237,142 237,142
Depreciation on Land Improvements 38,757 -
Core FFO Available to Common Shares $ 1,173,958 $ 1,043,63334
© Edgar Online, source Glimpses
POWER REIT 
